Vehicle import to be allowed but with heavy taxes and additional fuel tax

Also small rural businesses to be exempt from Bit and fixed deposit earnings to be no longer charged with Pit

For those itching to buy a new vehicle, they  may jump for joy as the government will allow import of vehicles, but their enthusiasm may be dampened after taking a closer look at the huge tax increases on vehicle imports in the Tax Bill. Also, be ready to pay five percent more for petrol and diesel every time you fuel your  car as the Tax Bill proposes an additional five percent Green Tax pushing the tax on fuel from the existing 25 percent tax (20 percent Customs Duty and five percent sales tax) to 30 percent.

The popular or common man’s cars in the form of affordable Altos, Maruti Van, Wagon R’s, Getz, i 20 etc with1000 to 1500 cc which earlier had a tax of 45 percent will be much more expensive with a proposed 110% tax. To break it down it will mean that earlier a car that cost say Nu 400,000 to import from India with the 45 percent taxes would be sold in Bhutan at Nu 580,000. However, the same car with a 110% proposed tax will now be 840,000 making it virtually unaffordable for most ordinary people. This will also mean a strong rise in the second hand value for such existing cars in Bhutan.

Vehicles in this category earlier had a 20 percent customs duty, 20 percent sales tax and five percent green tax which are now proposed to be 50 percent customs duty, 50 percent sales tax and 10 percent green tax.

There are also increases in other bigger car categories like (see main box) that includes cars like Honda Civic, Tucson, Sante Fe with increases being 115, 120 and 125 percentages respectively from the existing 50 to 70 percent tax rates.

The biggest jump of all will be for the 3000 cc and more variety cars which basically means big cars like Toyota Land Cruiser Prados, Toyota Land Cruisers and other big luxury cars with a proposed 180 percent tax from the existing 70 percent tax.

Vehicles like trucks and DCMs for transport in the 5 tonne to 20 tonne category will only see a 5% increase in tax from the existing 30 percent to the proposed 35 percent.

Vehicle parts like Chassis and body parts will also see increased taxes from 30 percent to 120 percent.

In line with the government’s policy to promote electric vehicles for ecological and financial reasons there will be no tax imposed on import of electric vehicles.

The Tax Bill for the first time proposes a five percent tax on Telecom services which could mean more expensive telecom services for customers. The Budget says this tax is to expand the tax base.

The Finance Minister Lyonpo Namgay Dorji said, “The government will definitely lift the ban on the import of vehicles once the Parliament passes the tax Bill.”

However, the previous government’s attempts to introduce high taxes for vehicles in Parliament had failed before finally banning imports in the wake of the rupee crisis.

The minister said that if the Parliament does not pass the Tax Bill at all or brings about drastic changes then the government would have to review allowing import of vehicles and probably not allow it at all.

He said that taxes would be effective from the day the Tax Bill was tabled which would be on Friday.

He said the fuel tax was needed as fuel imports was one of the biggest imports of the country and more expensive fuel would bring down imports and also import of vehicles.

The Budget report says that the number of vehicles have increased over the years culminating in vehicle imports being responsible for 16% of total imports with an import value of more than 60 percent of the export earnings from electricity.

It says the increasing number of vehicles as a direct impact on fuel besides other impacts like traffic congestion, pollution and accidents.

The budget also explains the fuel tax saying that the import of fuel in 2013 was Nu 7.40 bn consisting as one of the highest imports from India.

Some medical parts and airline spare parts have been placed under the zero tax category.

As part of the government’s election promise small and micro businesses in rural areas will be exempt from Business Income Tax from the income year of 2014 onwards. This would benefit 11,122 tax payers. The government’s aim is to encourage growth of small scale businesses, alleviate poverty, reduce rural-urban migration and reduce red tape. It says tax burden borne by small businesses in rural areas are higher compared to PIT payers. It is also expected to create greater equity in the system.

To encourage savings and improve liquidity for increased lending the government budget proposes to do away with charging PIT taxes on fixed deposits.

Both the Tax Bill and Budget was tabled on Friday and will be deliberated further from Monday onwards.

The Tax Bill says that a fine of three times the assessed amount or Nu 30,000 whichever is higher will be imposed for non-filing.

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